Since 2003 Kyrgyzstan tries to impose Russian oil company unprofitable Kyrgyzgas OJSC with multimillion debts. It took a decade to convince investors of the benefits of investments, and the authorities - of the need of transaction. In April 2014 the sales contract was signed after all, but the outlook remains optimistic only on paper. While they only have once again shown the sluggishness of Kyrgyz industrialists and their inability to negotiate.
In addition to the fact that Gazprom and the Kyrgyz Government signed a long-term (25 years) agreement on cooperation in gas sector, the company received two licenses for subsoil use on Kugart and Eastern Maili-Suu-IV fileds in 2008. At the same time the parties signed a memorandum of understanding on cooperation within privatization of the state-owned stake of Kyrgyzgas OJSC.
Political developments in Kyrgyzstan made their adjustments in cooperation with Gazprom, and after a brief lull, interaction resumed. During this time, the gas industry finally decayed, one after another breakdowns occurred on pipelines that have not been repaired for years.
On the basis of the intergovernmental agreement between Kyrgyzstan and Russia from 2013, Gazprom and Kyrgyzgas signed a contract for sale of 100 per cent of stake in the LLC KyrgyzgazProm on April 10, 2014, which is a subsidiary of Kyrgyzgas. Property complex of KyrgyzgazProm includes more than 700 kilometers of arterial and about 2,300 kilometers of gas distribution pipelines and 266 gas distribution stations. All property of Kyrgyzgas was transferred to "daughter", and then sold.
KyrgyzgazProm became the exclusive importer of natural gas, the owner of the gas transportation and distribution systems of the country. Following the transaction, it will be renamed to "Gazprom Kyrgyzstan".
In gas production in Kyrgyzstan there is no place for the Russian company. Proven natural gas reserves are estimated at 6 billion cubic meters. Domestic production of fuel in the country is about 20 million cubic meters per year, and annual consumption - about 300 million cubic meters, 90 percent of which is imported from Uzbekistan and Kazakhstan.
Gazprom only in 2013 extracted 487.4 billion cubic meters of gas. In its strategy the company adheres to the principle to produce such volume of gas to meet the demand. In the presence of effective demand of Russian consumers and favorable conditions in foreign markets production of Gazprom may reach 650-670 billion cubic meters by 2020. With the current consumption, Kyrgyzstan will have enough fuel for 20 years. Russian investor pursues more geopolitical objectives, and therefore is willing to invest in infrastructure and ensure uninterrupted supply of fuel at a discounted price, thus Russia will control the region and have an impact on relations between the neighbors. Redeeming Kyrgyzgas, Gazprom considered the possibility of supplying gas to Kyrgyzstan through Uzbekistan through "Zarubezhneftegaz" CJSC.
And now, when the transfer of assets is about to end, the south of the country is cut off from the gas supply for the third month already. Neither Kyrgyzgas, nor Gazprom can affect Uztransgaz, which is right from a legal perspective. After all, the maturity of the contract with Kyrgyzgas is expired and the supplier is not going to renew it.
When supply of gas to the southern regions stopped, the Chief of Osh Management of Gas Supply Mamatkalyk Akmatov told 24.kg news agency, that Uztransgaz closed the valve due to sale of Kyrgyzgas. According to him, the agreement stipulates that if owner of the company changes, the Uzbek side stops to supply fuel to the region. "We didn't warn Uzbekistan about the sale of Kyrgyzgas, so it stopped to deliver fuel," Akmatov noted.
Later on, Kyrgyzgas CEO Turgunbek Kulmurzayev finally acknowledged that the problem is related to the expiration of the contract. Most likely, the company hoped that once the parties signed a contract of sale, cares about providing new fuel volumes will fall on shoulders of Gazprom. However the Kyrgyz industrialists did not consider the fact, that by this time they must transmit the entire stake, which must at first buy out from all shareholders in order to gather the necessary 100 percent, 87.97 percent of which belong to the state, 5.66 - Social Fund, 6.37 - businesses and individuals.
Hitherto Kyrgyzgas doesn't have any information about when the process of transfer of assets will be completed. They tend not to talk that the shares from the minority shareholders are not redeemed. Previously, Kyrgyzgas declared that until December 31, 2013 it is ready to buy 552,190 ordinary shares of the Social Fund and the minority shareholders at 67.04 soms per share. Later on, the redemption period was extended until March 1. Gas workers reported that they could not complete the process of buying the shares, because the remaining shareholders did not exercise their right to sell securities. Termination of shares buyback can lead to resentment of shareholders, who mostly live in the regions and so far they have not responded to the notice of possibility of the sale of shares. Management of the company again extended buyback - now indefinitely, and that brought another batch of problems with suppliers and, obviously, to new owners of the company.
Gazprom gets angry accusations that it can not guarantee an uninterrupted supply of fuel to the republic, and therefore, reproaches that the deal at $1 is unfounded. The management of Kyrgyzgas actually lets investors down; making them can carrier in all issues, although, initially it was the Kyrgyz party, which has not notified vendors about sale of the company. Gazprom itself with a clear conscience can reproach Kyrgyzgas in default of contractual obligations and delaying the transfer of assets in its property.
Meanwhile, Turgunbek Kulmurzayev suddenly made a strange statement. He said that Gazprom OJSC didn't redeem neither Kyrgyzgas company itself, nor its shares. Then the question arises: what was transferred to a subsidiary and redeemed from shareholders, if 100 percent of the assets of Kyrgyzgas were transferred to "daughter"? After all, the head of the company that made the incomprehensible, but a loud statement, has repeatedly confirmed this fact.
"According to the signed on July 26, 2013 agreement between the governments of Kyrgyzstan and Russia, which entered into force on February 17, 2014, Kyrgyzgas was to create its subsidiary and give it all its property, and then sell it to Gazprom. Kyrgyzgas itself should not go into the hands of Gazprom and repurchase of shares from minority shareholders does not affect transfer of assets, tariff policy or gas supply in the country. Today, in pursuance of the signed agreements there was created LLC KyrgyzgazProm and relevant activities are conducted on the transfer of the company to the Russian Gazprom," the latest allegations of Kulmurzaev state.
Gazprom doesn't have or do not want to disclose the information. On numerous questions of 24.kg news agency representatives of the Russian company responded briefly and vaguely: "At present the procedure of transaction between Gazprom and Kyrgyzgas on sales of 100-percent stake in authorized capital of LLC KyrgyzgazProm continues. Negotiations on supply of Uzbek gas to southern regions of Kyrgyzstan continue."
There is no hope that these negotiations will be successful. Leadership of the country practically admitted that people don't need to wait natural gas from Uzbekistan no longer. There will be no gas. And it was decided to provide the population with liquefied gas and set electric cookers for subscribers. Local authorities continue to assert that the situation in the region is calm and people are sympathetic to the problem, because they know that the question is no longer economic, but political one.
Obviously, Kyrgyzgas will present more than one surprise to Gazprom.